ATO’s tough stance boosts bankruptcies

Money owed to the Australian Taxation Office by bankrupted individuals and insolvent companies has soared by 20 per cent to nearly $5 billion in the past year, as accountants warned that the potent mix of an uncertain economy and strict debt recovery may push more to the brink.

The insolvency debt stands in stark contrast to debt considered collectable as the Tax Office’s tougher stance has curbed debt levels, which surged during the financial crisis. The headline debt of $27 billion is down 1.8 per cent on the total as at April last year.

RSM Bird Cameron head of tax services Paul Heiler said the ATO was increasingly reluctant to renegotiate payment arrangements and quick to act in the presence of insolvency risk.

“No doubt in time you’ll see a greater number of winding-ups and insolvencies," he said. “They’ve drawn a line in the sand and started taking legal action."

Short of winding up, the main avenues taken by the tax man to enforce payment were garnishee orders, statutory demands and director penalty notices.

“The Tax Office has only really started going down that path in the last six months – it takes some time once those legal processes have begun for bankruptcy or winding-up pro­cesses to occur," he said.

For taxpayers with escalating debt, the firmer ATO action was “fair enough", he said.

In an interview with The Australian Financial Review, Tax Office deputy commissioner for debt Steve Vesperman said his office had been taking firmer action with taxpayers that have defaulted on payment arrangements multiple times, as well as where there was evidence of escalating debt and an unwillingness to comply.

The action contrasts with the Tax Office’s more lenient approach during the credit crisis. In 2010, more than 113,000 payment arrangements were entered and $38 million of debt forgiven, in part or in full. “If people had repayment plans and they were breached it wasn’t difficult to get a new one," said Mr Whittingham.

He said the decreasing tolerance of the Tax Office for those in default was understandable. “If people have breached various plans with the Tax Office, I think it’s only fair."

Those industries struggling included the “deeply in distress" property sector, and to a lesser extent, retail, as purse-strings tighten.

Parts of the mining industry were also struggling, despite the headline success of the bigger players.

Mr Whittingham doesn’t see it changing over the next couple of years.

“The banks that we’re talking to have got a certain level of problems on their books."

Recent insolvency figures showed nearly 800 companies a month have collapsed for the tax year to date – higher than the monthly average in each of the previous two years.

“I think most people thought that by early 2011 they would see some signs of recovery," said Taylor Woodings insolvency partner Quentin Olde. “They’re starting to see now that the problems are deeper than they thought."

Retail, property and tourism were among businesses that experienced an increase in tax collection activity, said Mr Olde. “But I don’t know whether it’s because the ATO is targeting them or because that’s where the problems are – I suspect it is the latter."

While some businesses, such as those in post-disaster rebuilding were doing well, Mr Olde said “we’re seeing that there are more indicators of ­continuing challenging times than there are of recovery".

Mr Olde said the Tax Office was measured in its recovery approach.

Tax commissioner
Michael D’Ascenzo
said collectable debt made up 5 per cent of the total tax take. ­“People have, by and large, been paying their debt or we have had to take some firmer action sometimes to bring it in," he told a recent Senate hearing.